Banks Withholding Foreclosure Properties to Boost Sales

Banks are being blamed for the shortage of foreclosure properties for sale as industry experts claimed that they are withholding the release of repo homes for several months now. Industry experts pointed out that banks opted not to release foreclosure properties for sale on the market because they wanted to create an artificial shortage of distressed properties.

According to experts, the artificial real estate shortage will occur when homebuyers find that they must compete for a limited supply of cheap foreclosed homes.

Wells Fargo senior economist and vice president Scott Anderson explained that withholding a number of foreclosure properties for sale from the real estate market is a deliberate effort on the part of lenders to abate the drastic decline in home prices.

Results from a study of the foreclosures market showed that only one third of repo homes are being marketed for sale. Anderson added that if banks will release all foreclosure properties on their portfolios for sale, property values will surely take another steep plunge.

Anderson pointed out that withholding foreclosure properties from the market could greatly impact the balance sheets of lenders and for any individual who will try to sell a home or seek mortgage refinancing.

Economist John Husing agrees that flooding the market with foreclosure properties is not a wise decision for banks and will cause prices to fall further. He predicted that declining inventory and increasing homebuyer demand will put a stop on the dropping home prices in Southern California.

ForeclosureRadar Chief Executive Officer Sean O’Toole echoed what Husing said, adding that banks are being careful over releasing too many foreclosure homes at once because they believed that prices are being affected by supply and demand.

Results of foreclosure monitoring service RealtyTrac’s study of 234,716 California foreclosures showed that about 34 percent of foreclosed homes were advertised by the multiple listing services in November 2008. Multiple listing services are how banks normally market their repossessed properties.

RealtyTrac senior vice president Rick Sharga said that the usual procedure is for banks to process repossessed homes, rehabilitate and list them for sale within a period of 30 days.

Sharga surmised that banks also refrain from releasing distressed properties at once because they want to defer accounting losses and they want see whether they can boost their finances from the U.S. government help or by selling foreclosure properties on the market.

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